Price rise to offset cost of Kupe gas

Rising gas and oil prices will go a long way to offset the soaring costs of bringing Kupe gas to shore for use, says the field's half-owner, Origin Energy.

A price tag of around $800 million is far above initial estimates of what would be needed to develop the offshore site, found by New Zealand Oil and Gas in 1986.

But with world oil prices soaring, and power generators crying out for local gas supplies, Kupe's owners should be able to afford their investment with higher revenues.

Six exploration and appraisal wells have since been drilled in the Kupe area, which lies under 35 metres of water, just 30km south of the Taranaki peninsula.

Like Maui, the field will produce natural gas for use in power stations, LPG and other fuels.

The first gas from Kupe should be flowing early in 2008, with the joint-venture partners making a final investment decision on the project in the next few months.

Gas from the field will come ashore and be piped into the existing gas treatment plant at Kapuni.

Light oil and LPG will be trucked from a new onshore production station.

Australian company Origin Energy is the 50 per cent owner of the joint venture. State-owned enterprise Genesis Power owns 31 per cent, NZOG owns 15 per cent and Mitsui E&P New Zealand has the remaining 4 per cent.

They announced this week that ENSCO Oceanics International had won the contract to drill three of the Kupe development wells and bids had been received for the construction of the production station.

A six-month drilling programme is due to start in the first half of next year, taking around six months.

Production costs of around $800 million were "considerably higher" than originally anticipated, said Origin late last year when full resource consent for the project was given.

Company spokesman Wayne Gregory said high steel prices were a big factor in the price increase along with cost increases caused by the unprecedented level of activity in the oil and gas market around the world.

Another factor putting a strain on people and resources was the damage done to oil and gas facilities by the destructive hurricane season in the United States last year.